Mr. Brad Shaw reports
SHAW ANNOUNCES SOLID FOURTH QUARTER FINANCIAL AND OPERATING RESULTS AND PRELIMINARY FISCAL 2015 GUIDANCE
Shaw Communications Inc. has released its consolidated financial and operating results for the fourth quarter and year ended Aug. 31, 2014. Consolidated revenue for the three- and 12-month periods of $1.26-billion and $5.24-billion, respectively, was up 1 per cent and 2 per cent over the comparable periods last year. Total operating income before restructuring costs and amortization of $525-million improved 6 per cent over the comparable quarter while the annual amount of $2.26-billion increased 2 per cent over the prior year.
Chief executive officer Brad Shaw said: "I'm pleased to report solid fourth quarter and full year financial and operational results reflecting the strength of our business as we grow and develop as a leading network and content experience company. Our investments in programming, technology and innovative products combined with our focus on exceptional customer experience and operational efficiencies continues to drive profitability and long-term growth."
Free cash flow for the three- and 12-month periods of $143-million and $698-million, respectively, compared with $61-million and $604-million for the same periods last year. The improvement was due to increased operating income before restructuring costs and amortization, lower capital investment and interest expense, partially offset by higher cash taxes.
Net income was up 64 per cent to $192-million, or 40 cents per share, for the quarter ended Aug. 31, 2014, compared with $117-million, or 24 cents per share, for the same period last year. Net income for the annual period of $887-million, or $1.84 per share, improved 13 per cent over the comparable period amounts of $784-million, or $1.64 per share. The current periods benefited from higher operating income before amortization and restructuring costs, lower amortization and interest expense, and improved net other costs and revenue, partially offset by higher income taxes. On an annual basis, the impact of the aforementioned items was partially reduced by restructuring costs.
Revenue in the cable division of $837-million and $3.36-billion for the current three- and 12-month periods improved 2 per cent and 3 per cent, respectively, over the comparable periods. Operating income before restructuring costs and amortization for the quarter of $412-million increased 4 per cent over the same quarter last year and the 12-month period was up 3 per cent to $1.63-billion.
Satellite revenue of $220-million and $878-million for the three- and 12-month periods, respectively, compared with $219-million and $860-million in the same periods last year. Operating income before restructuring costs and amortization for the current quarter was $72-million compared with $66-million last year and the annual amount of $277-million compared with $285-million in the prior year.
Quarterly revenue in the media division of $231-million was consistent with the same quarter last year while operating income before restructuring costs and amortization of $41-million improved from $34-million in the comparable period. On an annual basis media revenue was $1.10-billion compared with $1.11-billion last year while operating income before restructuring costs and amortization was unchanged at $353-million.
On Sept. 2, 2014, Shaw closed the ViaWest Inc. acquisition. ViaWest was one of the largest privately held providers of data centre infrastructure, cloud technology and managed IT solutions in North America. Through the acquisition Shaw has gained significant capabilities, scale and immediate expertise in the growing marketplace for enterprise data services.
Mr. Shaw commented: "The ViaWest acquisition provides Shaw a growth platform in the attractive North American data centre sector and is another significant step in expanding our technology offerings for mid-market enterprises in Western Canada.
"We have a leading portfolio of assets and a talented and passionate team that continue to execute on our strategy. Looking forward to fiscal 2015, we expect growth in consolidated operating income before restructuring costs and amortization to range from 5 per cent to 7 per cent with the inclusion of ViaWest, which we expect to contribute approximately $85-million (U.S.). We anticipate increased capital investment (excluding amounts funded through the accelerated capital fund) as we continue to enhance our network, provide innovative product offerings and expand the ViaWest footprint. Combined with higher interest related to the ViaWest acquisition and increased cash taxes, free cash flow is expected to exceed $650-million.
"We are never satisfied with the status quo. We continue to compete and win in a dynamic highly competitive environment through continuous improvement and capitalizing on opportunities as they arise, delivering value to our customers and our shareholders."
SELECTED FINANCIAL HIGHLIGHTS
(In millions, except per share)
Three months ended Aug. 31, Year ended Aug. 31,
2014 2013 2014 2013
Revenue $1,263 $1,246 $5,241 $5,142
Operating income
before restructuring
costs and
amortization 525 496 2,262 2,220
Operating margin 41.6% 39.8% 43.2% 43.2%
Funds flow from
operations 392 429 1,524 1,380
Net income 192 117 887 784
Per share data
Earnings per share
Basic 0.40 0.24 1.84 1.64
Diluted 0.40 0.24 1.84 1.63
Consolidated overview
Consolidated revenue of $1.26-billion and $5.24-billion for the three- and 12-month periods improved 1.4 per cent and 1.9 per cent, respectively, over the comparable periods last year. Consolidated operating income before restructuring costs and amortization for the quarter of $525-million improved 5.8 per cent over the comparable period, while the annual amount of $2.26-billion increased 1.9 per cent. After adjusting for the net impact of acquisition and disposition activity, operating income before restructuring costs and amortization was up 6.5 per cent for the quarter and 3.0 per cent on an annual basis.
Revenue growth in the cable division, primarily driven by pricing adjustments and growth in business, was partially reduced by lower video subscribers and increased programming costs. The annual period also included higher employee related amounts. In the satellite division the revenue improvement, due to pricing adjustments, was partially reduced by higher programming costs. The annual period also included increased operating costs related to the Anik G1 satellite launched late in the third quarter of fiscal 2013. The marginal annual revenue decline in the media division, primarily due to reduced advertising revenues partially offset by increased subscriber revenues as well as the favourable impact of a retroactive adjustment in the first quarter of the year related to distant signal retransmission royalties, was offset through various expense reductions. Within all segments, the prior annual period benefited from a one-time adjustment related to certain broadcast licence fees totalling approximately $14-million.
The company's strategy is to balance financial results with maintenance of overall revenue generating units (RGUs). The cable and satellite divisions have 6.1 million RGUs -- which represent the number of products sold to customers. During the quarter overall RGUs declined by 13,675.
During the third quarter, the company announced changes to the structure of its operating divisions to improve overall efficiency while enhancing its ability to grow as the leading network and content experience company. Shaw's residential and enterprise services will be reorganized into new consumer and business units, respectively, with no changes to the media division. In connection with the restructuring of its operations, the company recorded $58-million primarily in respect of the approximate 400 management and non-customer facing roles which were affected by the organizational changes. The anticipated annual savings, net of hires to support the new structure, is approximately $50-million. Including the acquisition of ViaWest, the company expects to commence reporting on the new divisions of consumer, Shaw business, ViaWest and media in the first quarter of fiscal 2015.
Shaw continues to invest in and build awareness of Shaw Go WiFi and as at Aug. 31, 2014, had over 45,000 hot spots and 1.25 million devices registered on the network, reflecting the value of the service to customers.
During the current quarter, the company partnered with Rogers Communications to form shomi, a new subscription video-on-demand service having the latest most exclusive shows and selections personalized for viewers. The service is expected to launch in beta in November, 2014.
On Sept. 2, 2014, the company closed the acquisition of 100 per cent of the shares of ViaWest, for an enterprise value of $1.2-billion (U.S.) which was financed through a combination of cash on hand, assumption of ViaWest debt and a drawdown of $330-million (U.S.) on the company's credit facility. ViaWest is headquartered in Denver, Colo., and has 27 data centres in eigth key Western United States markets providing co-location, cloud and managed services.
Net income was $192-million and $887-million for the three- and 12-months ended Aug. 31, 2014, compared with $117-million and $784-million for the same periods last year.
Basic earnings per share were 40 cents and $1.84 for the three- and 12-month periods, respectively, compared with 24 cents and $1.64 in the same periods last year. The current periods benefited from higher operating income before restructuring costs and amortization, lower amortization and interest expense, and improved net other costs and revenue, partially offset by higher income taxes. On an annual basis, the impact of the aforementioned items was partially offset by restructuring costs. Net other costs and revenue in both years was impacted by various items including gains on sales of media and cable assets as well as writedowns of assets while the prior year also included amounts in respect of recovery activities related to damage at Shaw Court.
Net income in the current quarter decreased $36-million compared with the third quarter of fiscal 2014 due to lower operating income before restructuring costs and amortization of $76-million, primarily due to the seasonality of the media business, which was partially offset by the impact of the restructuring costs recorded in the prior quarter.
Free cash flow of $143-million and $698-million for the three- and 12-month periods, respectively, improved from $61-million and $604-million in the comparable periods. The improvement in the current periods was due to increased operating income before restructuring costs and amortization and lower capital investment and interest expense, partially offset by higher cash taxes.
Cable
Operating highlights
- Revenue and operating income before restructuring costs and amortization
improved 2.3 per cent and 4.0 per cent, respectively, over the comparable period last
year.
- During the quarter, Internet customers were up 11,983 to 1,930,401 and
digital phone lines increased 1,114 totalling 1,375,334 as at Aug. 31, 2014. Video subscribers decreased 20,166.
Cable revenue for the three- and 12-month periods of $837-million and $3.36-billion improved 2.3 per cent and 3.0 per cent, respectively, over the comparable periods last year. Price adjustments along with growth in business, including the Envision acquisition, and Internet were partially offset by lower video subscribers. The current annual period also reflected the impact of the divestiture of Mountain Cable.
Operating income before restructuring costs and amortization for the quarter of $412-million was up 4.0 per cent over the same period last year. The annual amount of $1.63-billion improved 3.2 per cent. In the current quarter, the net revenue related improvement, along with lower employee related expenses due to the current year restructuring and the reduction in the local programming improvement fund (LPIF) from 1.0 per cent to 0.5 per cent, were partially reduced by increased programming amounts related to new services and increased rates as contracts renewed. On an annual basis the net revenue improvement, along with lower marketing expenses and the LPIF reduction, were partially offset by increased programming costs and higher employee-related expenses. The prior 12-month period also benefited from a favourable adjustment of approximately $7-million to align certain broadcast licence fees with the CRTC (Canadian Radio-television and Telecommunications Commission) billing period.
Compared with the third quarter of fiscal 2014 revenue declined marginally due to seasonally lower on-demand and pay-per-view events along with lower video subscribers. These declines were partially offset by business growth. Operating income before restructuring costs and amortization was down 1.2 per cent as a result of net lower revenue and higher marketing costs in support of the Shaw Charity Classic golf sponsorship partially offset by lower various other expenses.
Capital investment was $276-million and $988-million in the current three- and 12-month periods and included $79-million and $240-million, respectively, of investment financed through the accelerated capital fund. Capital investment for the same periods last year was $296-million and $867-million, and included $60-million and $110-million, respectively, of investment financed through the accelerated capital fund. The accelerated capital fund initiatives include continued investment on the new internal data centre, network capacity, next-generation delivery systems and expediting the WiFi infrastructure build.
Success-based capital in the quarter was $10-million lower than the comparable three-month period due to lower video equipment activations. For the 12-month period success-based spend was $31-million higher than the same period last year due to video equipment included offers and higher WiFi modem purchases partially reduced by lower digital phone modem purchases.
Quarterly investment in upgrades and enhancement and replacement categories combined of $96-million declined $50-million compared with the fourth quarter last year due to timing of spending in the current year on IPTV delivery systems, and prior year investment in hubsite, core networks for video and Internet, and telephony system upgrades. For the annual period, investment of $413-million was lower by $13-million due to prior year investment in the digital network upgrade project. Significant investment continued in upgrades to Internet bandwidth capacity and congestion, WiFi network build, business customer growth, and IPTV video systems.
Investment in buildings and other was up $36-million and $103-million, respectively, for the current three-month and 12-month periods compared with the same periods last year. The increases relate to higher spending on the new internal data centre and Shaw Court refurbishment.
Shaw continues to invest in the largest WiFi network in Canada, now with over 45,000 hot spots located in businesses and municipalities from Victoria, B.C., to Sault Ste. Marie, Ont. Shaw's carrier-grade network allows Shaw Internet customers, while on the go, to access and stream Internet content, including Shaw Go apps.
Satellite
Operating highlights
- Revenue for the current quarter and annual period improved 0.5 per cent and
2.1 per cent, respectively. Operating income before restructuring costs and
amortization for the three-month period of $72-million was up 9.1 per cent over
the comparable period last year and for the 12-month period was
$277-million declining from $285-million last year.
- During the quarter, Shaw Direct subscribers decreased 6,606. As at Aug. 31, 2014, DTH customers totalled 880,623.
Revenue of $220-million and $878-million for the three- and 12-month periods was up 0.5 per cent and 2.1 per cent, respectively, over the comparable periods last year primarily due to rate adjustments partially offset by customer declines.
Operating income before restructuring costs and amortization of $72-million for the three-month period improved 9.1 per cent over the same period last year due to the revenue related amounts combined with reduced employee related and marketing expenses. Operating income before restructuring costs and amortization for the 12-month period of $277-million decreased from $285-million last year primarily due to revenue-related improvements offset by higher fees related to programming services and operating costs related to the Anik G1 transponders launched in the third quarter last year. The prior annual period also benefited from a favourable adjustment of approximately $4-million to align certain broadcast licence fees with the CRTC billing period.
Revenue and operating income before restructuring costs and amortization for the current quarter were comparable to the third quarter of fiscal 2014.
Total capital investment of $18-million and $89-million for the three- and 12-month periods declined from $31-million and $123-million, respectively, in the same periods last year. Success-based capital was down in each of the current periods primarily due to lower customer growth. The decrease in transponders reflects the final payment related to Anik G1 in the prior annual period while the decline in buildings and other relates to higher investment last year in various uplink equipment.
During the quarter, Shaw Direct added three new TSN channels (in high definition and standard definition), as the sports service expanded its lineup. Shaw Direct now offers over 650 channels of which more than 220 are HD.
Media
Operating highlights
Revenue and operating income before restructuring costs and amortization for the quarter was $231-million and $41-million, respectively, compared with $231-million and $34-million last year. Current quarter revenues were impacted by the disposition of Historia and Series+ although this was offset by increased subscriber and other revenues. Operating income before restructuring costs and amortization for the quarter improved primarily due to reduced employee related costs.
For the 12 months ending Aug. 31, 2014, revenue of $1.10-billion and operating income before restructuring costs and amortization of $353-million compared with $1.11-billion and $353-million, respectively, for the same period last year. Revenues declined due to reduced advertising revenues and the impact of the disposition of Historia and Series+. This was partially offset by increased subscriber and other revenues that included a retroactive adjustment of $6-million related to Global's share of royalties for distant signal transmission for the years 2009 through 2013. Operating income before restructuring costs and amortization was unchanged year over year as the current year revenue decline was offset through various lower expenses including employee related and marketing. The prior 12-month period also benefited from a favourable adjustment of approximately $3-million to align certain broadcast licence fees with the CRTC billing period.
Compared with the third quarter of fiscal 2014, revenue and operating income before restructuring costs and amortization decreased $70-million and $73-million, respectively. The decline was primarily due to the seasonality of the media business, with higher advertising revenues in the first and third quarters driven by launches of season premieres in the first quarter and midseason launches along with season finales in the third quarter resulting in higher advertiser demand.
In the quarter, Global continued to deliver solid programming results, leading in the top-10 program rankers nationally and in all major markets, finishing the summer with seven of the top-10 nationally. The results are driven by the long-standing franchise Big Brother along with Canadian hit Rookie Blue, completing its fifth season. The second season of Under the Dome and newcomer Extant were also firmly in the top 10 in all major markets. The conventional fall programming premiered through the month of September and into October with a solid returning lineup combined with new drama programming that includes The Blacklist, Sleepy Hollow, Bones, Elementary, The Good Wife, the NCIS franchise, Madame Secretary and Gracepoint.
Media's specialty portfolio continues to hold solid positions in the channel rankers in the adult 25 to 54 category with three of the top-10 analogue channels and five of the top-10 digital channels. National Geographic, a digital channel, continues to rank in the top 20 of all specialty channels and Shaw Media holds two of the top-five specialty programs for the season, Defiance on Showcase and Swamp People on History.
Global News continues to retain the No. 1 position in the Vancouver, Calgary and Edmonton markets, while continued focus on on-line and mobile audiences has maintained Global's website as Canada's fastest-growing major news site. In August, Shaw filed an application with the CRTC for a new Category C hybrid national and local all news channel.
Capital investment in the quarter and annual period was $11-million and $18-million, respectively, compared with $15-million and $31-million for the corresponding periods last year. Higher investment levels were incurred in the prior periods to support various initiatives including the launch of BC1 regional news channel, completion of the DTV transition in mandated markets and various facility investments.
Financial position
Total assets were $13.2-billion at Aug. 31, 2014, compared with $12.7-billion at Aug. 31, 2013.
Current assets increased $138-million primarily due to increases in cash, accounts receivable and inventories of $215-million, $7-million and $23-million, respectively, partially offset by a decrease in assets held for sale of $105-million upon closing the sale of Historia and Series+ in the second quarter. Cash increased as funds provided by operations exceeded cash outlays for investing and financing activities. Accounts receivable increased due to timing of collection of advertising and other receivables while inventories were higher due to timing of equipment purchases.
Investments and other assets increased $50-million due to various financial investments including the investments in Pulser and the SHOP website.
Property, plant and equipment increased $282-million primarily as a result of current year capital investment exceeding amortization.
Other long-term assets decreased $23-million primarily due to lower deferred equipment costs and related customer equipment financing receivables.
Intangibles increased $45-million mainly due to additional investments in software intangibles and acquired program rights and advances exceeding the amortization for the current year.
Current liabilities decreased $809-million due to the repayment of the promissory note of $48-million, a decline in the current portion of long-term debt of $950-million, a decrease in liabilities associated with assets held for sale of $14-million, and lower accounts payable and accrued liabilities of $31-million, which were partially offset by increases in provisions of $18-million, income taxes payable of $205-million and unearned revenue of $11-million. The current portion of long-term debt decreased due to the repayment of the 7.5-per-cent $350-million senior notes which were due in November, 2013, and early redemption of the 6.5-per-cent $600-million senior notes which were due June, 2014. Liabilities associated with assets held for sale decreased as the sale of Historia and Series+ closed during the second quarter at which time the company settled the promissory note that had been owing to Corus. Accounts payable and accruals declined due to a decrease in CRTC benefit obligations as well as timing of payment and fluctuations in various payables. During the current year, the company financed the remaining expenditure commitments in respect of the fiscal 2007 CRTC benefit obligation which the company had assumed as part of the media acquisition in 2010. Provisions increased primarily due to the restructuring while income taxes payable increased due to the current year expense partially offset by net tax instalment payments. Unearned revenue was higher primarily due to an increase in advance bill payments.
Long-term debt increased $822-million due to the issuance of 4.35-per-cent $500-million senior notes and $300-million floating-rate senior notes and the refinancing of the partnership's mortgage debt.
Other long-term liabilities increased $28-million due to an increase in employee benefit plans, primarily as a result of actuarial losses, partially offset by a decrease in CRTC benefit obligations.
Deferred credits decreased $10-million due to amortization of deferred indefeasible right of use revenue.
Deferred income tax liabilities, net of deferred income tax assets, decreased $63-million due to the current year income tax recovery.
Shareholders' equity increased $524-million primarily due to increases in share capital of $227-million and retained earnings of $347-million partially offset by an increase in accumulated other comprehensive loss of $46-million. Share capital increased due to the issuance of 9,199,784 Class B non-voting shares under the company's option plan and dividend reinvestment plan. As of Oct. 15, 2014, share capital is as reported at Aug. 31, 2014, with the exception of the issuance of a total of 806,863 Class B non-voting shares upon exercise of options under the company's option plan and the DRIP. Retained earnings increased due to current year earnings of $857-million partially offset by dividends of $510-million. Accumulated other comprehensive loss increased due to the remeasurements recorded on employee benefit plans.
Guidance for 2015
With respect to 2015 guidance, on a preliminary basis, the company expects consolidated operating income before restructuring costs and amortization growth to range from 5 per cent to 7 per cent with the inclusion of ViaWest, which is expected to contribute approximately $85-million (U.S.). Increased capital investment (excluding amounts financed through the accelerated capital fund) is anticipated as the company continues to enhance its network, provide innovative product offerings and expand the ViaWest footprint. Combined with higher interest related to the ViaWest acquisition and increased cash taxes, free cash flow is expected to exceed $650-million.
Certain important assumptions for 2015 guidance purposes include: stable customer base; stable pricing environment for Shaw's products relative to current rates; no significant market disruption or other significant changes in economic conditions, competition or regulation that would have a material impact; stable advertising demand and rates; and a stable regulatory environment.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share)
Three months ended Aug. 31, Year ended Aug. 31,
2014 2013 2014 2013
Revenue $1,263 $1,246 $5,241 $5,142
Operating, general and
administrative (expenses) (738) (750) (2,979) (2,922)
Restructuring costs (5) - (58) -
Amortization
Deferred equipment revenue 19 30 69 121
Deferred equipment costs (39) (65) (142) (257)
Property, plant and equipment,
intangibles and other (166) (188) (692) (718)
Operating income 334 273 1,439 1,366
Amortization of financing costs
-- long-term debt - (1) (3) (4)
Interest (expense) (63) (75) (266) (309)
Gain on sale of media assets - - 49 -
Gain on sale of cablesystem - - - 50
Acquisition and divestment costs (4) - (4) (8)
Gain on sale of associate - (2) - 7
Accretion of long-term
liabilities and provisions (2) (2) (6) (9)
Debt retirement costs - - (8) -
Other (losses) - (17) (6) (26)
Income before income taxes 265 176 1,195 1,067
Current income tax expense 78 15 354 162
Deferred income tax expense
(recovery) (5) 44 (46) 121
Net income 192 117 887 784
Net income attributable to
Equity shareholders 187 111 857 746
Non-controlling interests in
subsidiaries 5 6 30 38
192 117 887 784
Earnings per share
Basic 0.40 0.24 1.84 1.64
Diluted 0.40 0.24 1.84 1.63
We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.